A risk profile is a set of data that characterises each investor’s ability and willingness to take risks. Each one of us have different risk profile based on our financial situation, background, psychology, etc…Some investors are aiming for conservative choices when it comes to the management of their money, while others like to take aggressive bets. They should thus have different strategies.
In most countries, financial service providers have the obligation to determine the risk profile of their clients. And it is a good thing! Before investing each investor should take some time to assess how much risk he can take. The determination of the risk profile can be somehow subjective, that’s why the methodologies employed by banks have evolved over time, incorporating contributions from different research fields, such as behavioral finance.